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Why to Start a Startup in a Bad Economy

• tom8williams 18y ago
  I agree totally about starting up something in a down economy. It's a great time to test the waters, position yourself for growth and then scale like crazy when the economy thaws. No good surfer ever catches a wave while it's breaking...by that time, it's too late and your eating coral reef. Good surfer bob up and down watching the horizon for the good wave... the big one. They see it before it ever starts to break and they're paddling at just the right time to nail it. Such is the start up entrepreneur in the bad economy. My company, InnoGage, will be able to weather this storm in the higher ed market, but we will be positioned for the global economy when it thaws. Tom Williams http://blog.innogage.com http://blog.innogage.com
• silverton 18y ago
  This post is almost entirely dead WRONG. It's revenue that matters, period. "People" are not what matters. Satisfied customers matter. If you provide a product or service that people are willing to pay for, then nothing ... NOTHING can take that from you. You don't NEED investors. Get off that trip. This article mentioned that, "the reason Larry and Sergey are so rich is not so much that they've done work worth tens of billions of dollars, but that they were the first investors in Google." Sorry, but again WRONG. The reason they are so rich compared to the rest of us is that we've lost track of the concept that we live in a Shared Fate world. We're all in this together, but we've forgotten that fact. It is physically and philosophically IMPOSSIBLE for any individual human being to be worth BILLIONS more than any other human being. We all put our pants on one leg at a time and we all only have 24 hours in a day. "All men are created equal." Remember that? It's called the Declaration of Independence. I believe your writing eminates from the right motives, but it fosters many of the wrong reactions and sentiments. Find a customer. Provide what the customer requires. No customer, no business. End of story. Yes, this post is intentionally terse and dialectical in order to to elicit meaningful dialog instead of pointless ass kissing.
  • 9keme 18y ago
    I agree that felt-value constitutes reality in business, on both sides, the value of having a vendor and the value of having a client, both orbiting a meaningful transaction. However I balk at the Declaration of Independence as the basis for this. It is part of cosmic law that seemingly disparate parts be unified as events in time and space. The time prior to now was more available to this awareness, but incompletely conscious of this underlying basis for justice, commerce, etc. We have no pants, basically. The internet has exposed this issue we have of whether to actually work for the true common good, for the Universal interest and no a niche freedom like americanic liberty or romantic imperial entitlement, or whether we are doing the fun thing - being king, being the man, being the world authority, but not the real, messy, selfless, egoless world leader. The leader serves the universal interest. The merely free do not have this underlying responsibility to the people. Whether in america, rome, babylon, sumaria, russia, the little people and the heavy heavies must be on the same platform, or there is no genuine premise of law. So that is the dynamic under the problem internet companies have. Solving the underlying dynamic will be required to solve the problem on top - revenue. Once this dynamic of congruence with the universe fruits, as it is today, there will no longer be quixotism in human interactions.I agree that felt-value constitutes reality in business, on both sides, the value of having a vendor and the value of having a client, both orbiting a meaningful transaction. However I balk at the Declaration of Independence as the basis for this. It is part of cosmic law that seemingly disparate parts be unified as events in time and space. The time prior to now was more available to this awareness, but incompletely conscious of this underlying basis for justice, commerce, etc. We have no pants, basically. The internet has exposed this issue we have of whether to actually work for the true common good, for the Universal interest and no a niche freedom like americanic liberty or romantic imperial entitlement, or whether we are doing the fun thing - being king, being the man, being the world authority, but not the real, messy, selfless, egoless world leader. The leader serves the universal interest. The merely free do not have this underlying responsibility to the people. Whether in america, rome, babylon, sumaria, russia, the little people and the heavy heavies must be on the same platform, or there is no genuine premise of law. So that is the dynamic under the problem internet companies have. Solving the underlying dynamic will be required to solve the problem on top - revenue. Once this dynamic of congruence with the universe fruits, as it is today, there will no longer be quixotism in human interactions.
• Cupofstartup 18y ago
  Good enough article, especially for "one step before" entrepreneurs. Fabian http://cupofstartup.blogspot.com/ http://cupofstartup.blogspot.com/
• kosso 18y ago
  As usual, wise words. Thanks. ;) You just reinforced what I have been saying to people about what I'm doing as a one-man startup with phreadz.com in these tough, cold times. People are out there building, or trying to build solutions to problems I have already solved on my own. So, now I can save them a whole lot of time and money by providing a solution for them right now. Hopefully this will help get them where they want/need to be without over-spending. Also, the fact that investors and clients will get a good deal now, if they jump on board now is a good thing, so we can all reap the benefits on the up-swing. Thanks for yet another great article. Kosso Founder : Phreadz.com
• softomic 18y ago
  In a bad economy, companies are busy trimming expenses and cutting staff. Finding a job is like finding a needle in a haystack. Why not start a start-up? If you are rolling down a mountain in a car that has no brakes, wouldn't you prefer to be the one behind the wheel? I would.
• jkaljundi 18y ago
  These times are great and many of us are loving the recession. For some ideas how to startups should take this positively, see http://kaljundi.com/2008/10/28/10-reasons-startups-love-recession/ http://kaljundi.com/2008/10/28/10-reasons-startups-love-rece...
• lvs004 18y ago
  excellent points! One thing I would like to add: In India, during booming times one problem startups face is finding good people at affordable rates. The demand supply equation is so bad that someone with 2 years experience in any sort of hacking will land a job that pays x+n where x is the current pay and n substantial percentage of it. Now in tougher times people would be willing to join and also stick around.
• bluenove 18y ago
  I believe that beyond 'creating a startup', it is rather INNOVATION that is something that is more than ever needed in times of crisis and recession. That is both true for startup companies and may be even more so for major corporations and brands. And even more during deep crisis when internal resources are lacking and budget shrinking, major corporations will have no other choice than managing innovation in an 'Open and collaborative' new way, and especially collaborating with innovative startups... These major corporations will therefore have to transform themselves into 'Open innovation' champions faster than what they would have done in a more 'comfortable' economy. From a crisis to an opportunity ? PS: this change management mission is the 'raison d'etre' of bluenove (www.bluenove.com), and as its CEO and founder i still consider we are in a startup phase so this article is for the least quite supportive ;-)
• vladimir 18y ago
  Russian translation of this essay is <a href="http://k-vladimir.blogspot.com/2008/11/blog-post.html http://k-vladimir.blogspot.com/2008/11/blog-post.html">here</a>.
• NakedCelt 18y ago
  As bad as the mid '70s? The commentators I'm reading are talking about the '30s.
• sramana 18y ago
  I am of the same opinion. You may want to check out my new book, Entrepreneur Journeys (Volume One): http://www.sramanamitra.com/2008/09/09/entrepreneur-journeys-now-on-amazon/ http://www.sramanamitra.com/2008/09/09/entrepreneur-journeys... Sramana
• kinet 18y ago
  Good article with few wisdoms. It is all about mind over matter.... good or bad.... A positive minds looks at problems as opportunities and other mind vice versa... As you mentioned the success or failure depends on founders rather than outside....
• pengo 18y ago
  I think this is spot-on Mr G. I wrote a similar blog recently, although targeted more broadly than just IT: http://www.aliveworld.com/members/pengo01/blog/archive/2008/10/21/why-you-should-ignore-the-gloom-and-live-your-dream.aspx http://www.aliveworld.com/members/pengo01/blog/archive/2008/...
• billswift 18y ago
  This is off topic, but this seems to be something PG would be interested in. I would like to see his take on the idea. www.overcomingbias.com/2008/11/fund-ubertool.html
• turknag 18y ago
  Thats exactly what i have done www.abhayatech.com
• ibeam2000 18y ago
  I just went ahead and did it, irrespective of what the economy was doing. Twice, no four times. On two continents. Damn the torpedoes and all that. OK, I did niche consulting and picked a business model which very much tried to save the client money. Problem is that niches come and go, and the challenge now is to find a new racket. I suppose I could try inventing something new. Now is a great time to do it. Of course, I will probably fail, but so what. If I make time to do it, I will certainly have at least a bit more time to ride my bike around and stall that looming congestive heart failure. But seriously, if you have a little bit of cash, or better, still have a bit of cash coming in, extra help won't get any cheaper than it is now. If I'm in Europe, I'll outsource to the USA. We never tried to make money - it just happened. Sure, it was much closer to Stallman than Billy Goat, but it paid for the house and will send my kid to MIT.
• eshoemaker12 18y ago
  Great post Paul. There will always be room for good ideas that actually solve problems. If you position the start-up now, it will be ready to reap even greater rewards as the economy recovers.
• jimmydasaint 18y ago
  Awesome article...I feel the same way & that's why I took the opportunity to start my fantasy sports company this year. Great read!!! www.funtasyfootball.com www.passitdeep.com www.letsgodeep.com www.marchdeep.com
• shortbusgeek 18y ago
  Personally I believe a recession is the best time to start a startup. Thinking of the amount of time and effort it takes to get a good startup going (typically), the economy could be coming out of a recession by the time you're ready to seek capital. Sure, you'll have to bootstrap, as angel investors will be far and few between, but it's definitley do-able. I've got 3 different ventures going on right now that I've been working on for 2 years, 1 year, and 6 months, respectively. The one that's 2 years old I won't be ready for venture capital for another 2 years probably. The one that is a year old could theoretically be ready for funding in another year, and the 6 month old I'm hoping to not even seek funding, but to just grow from the ground up into a profitable business a year from now as well. The three somewhat interconnect and can use features of each other, which will hopefully help propel each towards success. Either way, I'm taking advantage of the current recession as best as I can. Pageviews are up, my alexa traffic rankings are going the right way, and revenues continue to increase. All good signs that sometimes it's a recession that helps startups. :-)
• hackware 18y ago
  heh, as a self educated hacker from mississippi, with over 12 startups under my belt, you talk a lot of sense... (8 dismal failures, twice wealthy, once almost made the rainbow)... keep it up... you're almost my hero... :-) (really hard to beat out my father :-)
• musa 18y ago
  The blog seems to depict a case in hand I have with my project. Paul Graham should see what I am working on these days. Only thing is, as much as I need a VC partnership, I am slowly clearing free of having one due to the skill and the little financial support I already have.
• kjgillett 18y ago
  Interesting read...I just found an interview of a CEO of a business development firm who say the economy is BS. And in fact, it is not only a good time, but the BEST time, to start a business in a rough economy. You can call BS on his opinion even here: http://downtobusiness.com/bs-meter/start-business-bad-economy/ http://downtobusiness.com/bs-meter/start-business-bad-econom...
• Ambix 18y ago
  Thank you, Paul! Russian translation here: http://www.web30.ru/2008/12/04/zachem-zapuskat-startap-v-krizis/ http://www.web30.ru/2008/12/04/zachem-zapuskat-startap-v-kri...
• kylexlau 18y ago
  Chinese translation: http://www.ruanyifeng.com/blog/2008/12/why_to_start_a_startup_in_a_bad_economy.html http://www.ruanyifeng.com/blog/2008/12/why_to_start_a_startu...
• hualibaobao 18y ago
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• HyunU_Sohn 18y ago
  First a general comment: I´ve read almost all of your essays in two go´s, do I have to say I love them. Only dabble in software, studying financial systems originally. Curiously, I found mathematicians and now computer scientists are the best non-fiction writers, at least they work best for me, whatever they talk about it´s logical and beautiful and well-structured. (I struggled for a long time with the pompous bullshitting of "economists" and "business administrators".) Came here via ESR, whose book on Unix history and essays I also loved. Reconnecting to my past. Thanks! Regarding the topic of this essay, I think we can expect a lot of change in the financial industry. It is ripe for dissolution into smaller, more networked and fluid units. Also thinking about your essay on credentials here. Madoff is only most visible spearpost, it´s a general problem of delegated decision-making with so many conflicts of interest and such high noise to information. After all, finance and investments is all about information and capital is expressed in numbers. The industry has arrived at a critical point, your writings are highly pertinent for people in it.
• syntostic 18y ago
  pg: i agree once again. the exogenous nature of technological progress has always been independent of GDP growth. When the economy grows and consumption is booming, tech firms and start-up founders benefit yes, but then it's like waiting for a sunny day to go for a walk. You could go for a walk any day and get the same benefits: exercise and sight-seeing. In fact, too much sun might hurt you but you could always learn to get creative against wind/rain (coat and umbrella). I guess what I'm saying here in case you're lost is that a recession is bad weather than need not distract tech start-ups from flexing their muscles. If you could make it in bad weather, chances are, you could enjoy more success in the sunny weather! I don't want to say I agree that one has to launch a start-up during recessions only. Obviously, the most ideal time to start one is to know you can make decent money and a product that solves an important problem, be it in a good or bad economy, because, statistically, recessions are shorter and milder than before and expansions longer. In the end, it is not a question of when, even. It remains a question of how.
• nonte 18y ago
  Exactly, I also feel so and have written a blog on it http://barakbangla.com/index.php/Is-it-good-time-for-entrepreneurs-to-venture-out.html http://barakbangla.com/index.php/Is-it-good-time-for-entrepr...
• ivanceras 18y ago
  Well now, we are in a Bad economy for the first time in History in the whole world.
• azathoth 18y ago
  Are many of the startups by yc the viaweb sort? Free lisp on free unix with no relational database?
• einarvollset 18y ago
  Totally unrelated: Clicked through to Bountii, and then onto their API TOS, and found this: "[you agree not to] use the Bountii API to operate nuclear facilities, life support, or other mission critical application where human life or property may be at stake. You understand that the Bountii API is not designed for such purposes and that their failure in such cases could lead to death, personal injury, or severe property or environmental damage for which Bountii is not responsible;" Me he heeeeeee
  • ken 18y ago
    Maybe they use Java, which has long had such restrictions in its license, or another platform with those TOS. (I did once use Java for offline processing of data at a nuclear reactor research facility, but human life was obviously not at stake.)
  • jpuskarich 18y ago
    Sorry for the oversight; we just added "unmanned aircraft" to that list.
    • maxklein 18y ago
      What about to build guns which are intended to kill human beings?
• gscott 18y ago
  My suggestion is to be sure to advertise and push your project especially hard when your competitors are dropping like flies. If you mearly hang on you will come out the other end with a whole new slate of competitors that will be funded so you need to be in a strong position to take them on.
• balpreetspankaj 18y ago
  I agree. Startups that start now and are able to come out strong after the recession would have proved their mettle and hence will be successful. Also, this is the right time to form a strong team, coz most of the good hackers are looking for something interesting to work on (less competition).
• tac-tics 18y ago
  > The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies. Eh? Every expert I've heard lately is fearful we're headed towards a repeat of the great depression. The one during the 1930s... not the 1970s.
• newaccountname 18y ago
  There is about to be a whole raft of federal packages for small plumbing companies; that is the real reason to get started. Apparently you don't even need a license.
• mattmaroon 18y ago
  "investors tend to be less willing to invest in bad times. They shouldn't be. " Angels probably should. Many of them just had a 20%+ decrease in their net wealth. Investing is an activity for them, like golf, not a profession. They shouldn't make themselves feel uncomfortable financially. There's a difference between which action has the highest EV and which one you should take.
  • fallentimes 18y ago
    But don't you think they'd witness a similar discount in the valuations?
    • mattmaroon 18y ago
      Of course, but they've already achieved independent wealth, why risk it? Extra money to them is just icing on the cake at this point. Investing is basically a hobby for them, and when their money starts to evaporate, it's the first thing they will (and should) cut out.
      • nostrademons 18y ago
        Do angels really risk money that they can't afford to lose? I'd think that most of them would sock away enough to remain financially independent in safe investments, and then do their investing with "play money".
        • mattmaroon 18y ago
          They probably don't risk money they can't afford to lose. But if you figure an angel invests 20% of his money in startups, and the stock market comes along and reduces his total net worth by 20%, how much is he going to invest now? How much if he invests 10% in startups and the stock market hits him for 30%? It may not be 0, because he may have had other expenses and investments that he prioritizes angel investing over, but it probably won't still be 20%. The total dollar amount he'll be willing to stick into high-risk investments will probably decrease. I'm talking on average, of course. Each individual will vary according to their net worth, lifestyle, investment philosophy, etc.
• brk 18y ago
  Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed). One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam FAST. My prediction is that you will see more companies trying to start monetizing their web-app soon. FWIW, TipJoy is well positioned to take advantage of this if my prediction is true. Of course, I've always been a hardware/product startup hacker, but I've had a couple of rounds in software and Web 2.0 companies. So, I'm not as immersed in web-app funding cycles as some others here are. I would look to solar and certain other viable alternative energy options right now as the next major tech growth sector. I think the tech startup world needs to see more "inventions" (again, admitting my own bias). While many here may disagree with me, one of the problems with web-apps is that while they are cheap to get going (relatively speaking), I think that the saturation of non-revenue producing web-app companies, coupled with the low cost of starting them, will make many traditional VCs look elsewhere for their next investments. The web-app community needs more investors like YC, that keep the investments and process realistic.
  • danielh 18y ago
    Indeed, there are a ton of web-apps that probably will never take off. Still, there is the big advantage that you can build a prototype almost for free. Other fields (solar, biotech, whatever) might require way more money to start. For real stuff, like machines, not for swag and parties. Having nothing than an idea, how do you convince a VC that you need a ton of money, given the current economic situation?
    • robg 18y ago
      Still, there is the big advantage that you can build a prototype almost for free. As we build, this point still amazes me. If you're willing to put in the time and effort, the cost is not prohibitive. Build in spite of the VCs, not because of them. If your product is good enough, users will force them to find a path to your door. And, of course, you still have a day and a half: http://ycombinator.com/w2009.html http://ycombinator.com/w2009.html
• netcan 18y ago
  One of the underlying things here is that there is very little use saying 'bad economy' & leaving it at that. Bad what? What are the actual effects. A startup might be affected by: Customers/market - These are not necessarily the problem. True. Particularly if you are evolving in this economy, Like a Neanderthal in an ice age. This point is probably neutral on average. Investors - This may be a problem. This is a market that can shy. But only a problem if you need them. This point is negative. Buyers- (Of some description) Definitely a negative. But you don't need them right away & you can probably be more flexible waiting for the right time. If Cockaroach doesn't do it.. endospore. You can't have everything. Comeptitors - A plus. Fewer investors (including founders as the essay implies) by definition means fewer startups.
• rgrieselhuber 18y ago
  Great article and the example from the 70s (brk has some good points) was a good one. A LOT of innovation happened in what were very difficult times on a macro level. Living / working cheap is absolutely key. I knew the economy was going to tank back in January when I started my company, but I still did it. I'd also like to see more "inventions" (another good point from brk). There may be a certain amount of critical mass of development that has to happen around other technologies. The last 10 years or so have seen optimization in the development cycle for web apps, resulting in their relative low barrier of entry today. It could be my ignorance, but I don't detect the same level of commoditization in other industries. Of course, a higher barrier of entry is great for the people already involved. Another way to look at the "inventions" issue is the rather quick evolution of non-web technologies to web accessible interfaces. We've seen this happen with telephony, video, radio, print, television, navigation, security systems, and many more, I'm sure. It's pretty amazing actually. I think you'll continue to see more of this over the next few years, so we'll all still have stuff to work on.
• greendestiny 18y ago
  I'm not sure I follow that bad times being a good time to invest means that its a good time to start a company. Investors want a low price, but for founders I would have thought the amount of effort (price paid) is fairly much independent of the economy.
  • yummyfajitas 18y ago
    Opportunity costs are lower. If the economy were good, the opportunity cost of building a startup would be a high paying job as a quant. Since it's bad, all I'm missing out on is a shot at postdoc #2 or a faculty position.
• JoelSutherland 18y ago
  It is nice to read some sober thinking on the economy... PG has it exactly right. Startups are HARD and there are so many factors that are more important than the state of economy. The odds of success are low enough with a startup already that the economy shouldn't really change the decision making process.
  • wyclif 18y ago
    Don't forget that economic downturns, whether real or imagined, are another barrier to entry for your competition.
• charlesju 18y ago
  Another great essay Paul, I wrote up a blog post with similar conclusions last week: http://www.charlesju.com/2008/10/5-ways-recessions-help-startups.html http://www.charlesju.com/2008/10/5-ways-recessions-help-star... Sorry for the plug, I just thought it was funny that we're on the same side of the equation, when everyone else in the world isn't. It seems to me that somewhere along the evolution of the internet we forgot the golden rule of any business: If you make stuff people want, they'll pay for it (either directly or indirectly), and you'll make money. Recession or not.
• alecco 18y ago
  Very refreshing and rational. Thanks PG!
• davidw 18y ago
  I think it's fairly easy to write those things. What will be more interesting is actual data after a few YC rounds in a weaker economy.
• Alex3917 18y ago
  "Last year you had to be prepared to explain how your startup was viral. Next year you'll have to explain how it's recession-proof." In my experience, what's true of investors here is also true of potential co-founders. It's so much easier to get other people to work with you if your project is in a trendy field or appeals to the dominant logic of the afternoon. And it's really really frustrating. /end rant
  • shimon 18y ago
    Think of it as an easy way to screen out people who would be uncreative and uncommited. Less signal, but a higher signal to noise ratio.
    • Alex3917 18y ago
      Intuitively that makes sense but I'm not sure if it's actually true. It's relatively easy to convince someone who would otherwise go into hedge funds to instead do a web startup with you. It's much more difficult, however, to convince that person to do a startup to the field of, say, ethnic pharmacology. That doesn't mean the hedge fund guy would necessarily make a bad partner for a web startup though. (Stereotypes about finance people aside.) Also, I know pg says that not being able to find a cofounder after a certain point signals a lack of competence or a bad idea, which is generally of correct, but also realize that in some areas finding a cofounder is literally 10x harder than in others-- independent of the merits of the founder or the idea.
      • aaronblohowiak 18y ago
        ... then move.
    • jackchristopher 18y ago
      It felt like Paul was going to make a hard statement like that, but edited it. But I was thinking, "If the economy is stopping you, you're not the type to start one."
      • 18y ago
• aaronsw 18y ago
  This article seems to ignore the main argument I've heard: exit strategies are fewer in a recession. IPOs are out of the question and few companies are in an acquisition mood. So instead of growing fast and selling out before you hit your plateau, you have keep your traffic climbing until the market picks back up. That's really hard, esp. since founders have a tendency to get bored. I expect many will start something new at that point anyway, so I can see why it'd be tempting to skip the step in between. (That said, it's hard to think of a better way to spend the time -- even a failed startup's more educational than grad school.)
  • incomethax 18y ago
    While exit strategies might be fewer during a recession, the point of starting now is that the economy will (hopefully) be out of the recession by the time you want to exit (typically beyond 12-18 months).
    • pg 18y ago
      Yes. Startups generally take 3-5 years to succeed. The economic situation that far ahead is effectively random, so you can discount it.
      • fallentimes 18y ago
        Just curious, how do you define succeed? Founders becoming millionaires or?
    • jon_dahl 18y ago
      Agreed. With some exceptions, startups are more like marathons than sprints. Investors often look for an exit in ~5 years, while too many founders think that they'll be out, as a success or failure, in 18 months.
  • robg 18y ago
    Right, you have to build something people want - not something companies want. Solve the first and the second will always take care of itself. EDIT: Just to be clear: That doesn't rule out enterprise applications. People in companies have needs too!
• edw519 18y ago
  It's not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Funny, you can take the exact same software and position it as a totally different product in a different economy. Instead of "This software does a better job," imagine, "Our subscription fee is 10% your current cost of ownership. How will that affect your budget?" Once your customers start shopping with a "recession mindset", you'll already be positioned before your competitors. Without changing a single line of code.
• mapleoin 18y ago
  pg was a lot more fun when he used to talk about other things than making money all the time.
  • robg 18y ago
    Can you point to one essay where he uses the phrase "make money" or some variant thereof? More to the point: To me, a startup isn't about money. It's about freedom. That's where I've found much to like in his essays.
    • playkid 18y ago
      coolly puy
    • mhartl 18y ago
      In http://www.paulgraham.com/start.html http://www.paulgraham.com/start.html, Paul writes So who should start a startup? Someone who is a good hacker, between about 23 and 38, and who wants to solve the money problem in one shot instead of getting paid gradually over a conventional working life. So writing about startups is always implicitly about making money. (Not that there's anything wrong with that.)
      • robg 18y ago
        In your search did you find any other examples? The original comment said "all the time". That's a very different reading from mine and I'm frankly not sure where it comes from. Even that essay you cite, the quote is a tangent. It's not the central thesis.
      • parenthesis 18y ago
        But "solving the money problem" is about gaining the freedom to do what you love, without having to worry about putting food on the table. The problem is really a problem of freedom, which it just so happens can be solved by acquiring a load of dosh. So it's only about making money as a means to the end of freedom.
• mrtron 18y ago
  Great point. For some more anecdotal evidence, check out the first tech company I worked for: http://finance.google.ca/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=1&chdet=1224187200000&chddm=1274660&q=NASDAQ:OTEX&ntsp=0 http://finance.google.ca/finance?chdnp=1&chdd=1&chds... Immediately after the dot com bust, they were acquiring companies and hiring like crazy. The general pace of the stock market had little to do with how they were performing. It was a bit surprising considering they produce an enterprise software package and you would expect sales to be heavily tied to the market. But they produced a quality product that people wanted, and were able to push the knowledge management/collaboration angle well enough that companies felt like it was an investment they were making.
  • alecco 18y ago
    Yeah, buying on recession is great. But you have to have the cash first. Not exactly a startup situation.
• deleted 18y ago
  [deleted]
• maxklein 18y ago
  This article is titled wrongly. It should not be called "Why to startup in a bad economy", but "Why to startup, even if the economy is bad".
  • Herring 18y ago
    Reasons for...
  • ksvs 18y ago
    Don't quit your day job.
    • deleted 18y ago
      [deleted]
• fallentimes 18y ago
  "Last year you had to be prepared to explain how your startup was viral. Next year you'll have to explain how it's recession-proof." You should have to explain how it's going to make money, no matter the economy. Founders need to stop thinking they can just magically monetize later after reaching one fobillion users. If it happens, awesome, but don't bank on it. Google was an anomaly, but you wouldn't know it from the attitudes of others towards them.
  • mariorz 18y ago
    Do you have examples of sites with a "fobillion" (or close) users that still failed? I'm really curious. The examples I can think of, like friendster, really went under because of lack of users. I agree that you shouldn't bank on getting this fobillion users and after that monetizing them. But that's because the real hard part is getting that much users in the first place.
    • fallentimes 18y ago
      That was an obvious hyperbole. The point is: 50,000 or even 100,000 users =! success, and you don't necessarily need users to make money (although it helps!).
      • emmett 18y ago
        The grow-users-before-revenue strategy has several spectacular success stories: Google, YouTube, Facebook, Flickr, MySpace, etc. etc. That's not to say it's the only valid strategy, but it's certainly a valid strategy. In fact, it probably has the highest payoff, albeit with the highest variance.
        • fallentimes 18y ago
          -Google, obviously. Anomaly. -Youtube might have been fucked if it didn't get acquired. It was hemorrhaging cash like Pac Man Jones & Robert Downey Jr. trapped in a strip club. -Flickr was _priced_ like a talent acquisition. -Like most acquisitions, the Myspace acquisition has largely failed according to Google, their primary advertiser. Additionally, Myspace's contribution to News Corp's earnings have been piss poor. I agree that it's a valid strategy (especially for a company like Justin.TV), but IMHO opinion most companies have tunnel vision when it comes to turning in to a real business. It almost makes them risk seeking. Although getting acquired is nice, it sure as hell isn't a strategy - it's a cop out. I'm trying to come up with companies that tried this strategy and either worked (issued dividends continuously) or was acquired and actually benefited (i.e. was worth their acquisition price based on DCF) their acquiring company. I'm sure there are examples, I just can't think of any off the top of my head.
• YuriNiyazov 18y ago
  Wow, way to call me out just as I am preparing for the GREs and grad school applications. In my defense, I've previously wanted to go to grad school also, and even then, because I wanted to meet more people that would be potentially good cofounders.
  • nostrademons 18y ago
    The cofounder issue is also why I'm not starting another company (yet). I thought about going to grad school, but now am looking more towards getting a job at one of the big tech companies in the Valley. That at least will get me into the right geographic area, and with any luck I'll find some smart coworkers or friends there.
• toby 18y ago
  "If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it's rounding error compared to the founders." This is confusing -- wasn't Y Combinator started in 2005? Was PG funding startups before that?
  • JeffJenkins 18y ago
    Yes, and I have no idea. We should see in 3-5 years whether that statement is true or not. I'd guess not, although I'm not sure to what degree.
• akkartik 18y ago
  "What if you quit your job to start a startup that fails, and you can't find another? Good hackers can always get some kind of job. It might not be your dream job, but you're not going to starve." Hmm, isn't that kind of a low bar? I worry that I'll be 40 before I know it, with no savings to show for my years of work. Isn't opportunity cost a concern? Perhaps PG really is writing for the young.
  • ashr 18y ago
    I sure get the same impression. Start ups are for twenty somethings who are not married. If you are 30+, married and with a mortgage then forget it.
    • akkartik 18y ago
      I wouldn't go that far. Startups and freelancing in general present definite opportunities and advantages. But the risks need to be aired out more. Mental preparation makes success more likely.
    • kapitti 18y ago
      I'm 26, married with a mortgage, car payment, student loans, etc. The economy isn't going to stop me - my wife is willing to sell our house at the drop of a hat if we have to, move to another city if we have to, etc. You sacrifice short term for the long term gain, and if you're married to someone that supports you, they ride the roller coaster with you.
    • kikap 18y ago
      I'm 39, married, have a 7yo daughter, but luckily no mortgage. But I have $425 on a savings account to balance off having no mortgage :-) And I'm throat deep in a startup for 2 years already, it's just a beginning.
• bmelina 18y ago
  Starting up a tech company in lean times is certaintly different from any other business whose products are tangible. The startup and operational costs are much lower and surely, making wise choices the startup can outperform competitors.
• cmshop 18y ago
  If I would develop something that could help people with their education, it should probably be recession-proof. Also, while US may suffer recession, some other countries probably still enjoy economic growth.
• robak 18y ago
  What about having savings instead of "investor funding" ? If you have developed a great product why in the world would you like to share your company with VCs anyway ? Why you need somebody to invest in your company ? I mean come on people, you can save $10k in vacation as a college student waiting tables and have 100% pie for yourself. I don't understand the logic here. Never did.
  • kikap 18y ago
    Not everything is yet cheap enough to run on 10-50k of savings. Take semiconductors for example. Some software technologies are also quite expensive to develop, not everybody is doing web apps, thanks God :-)
• shinvee 18y ago
  Thanks PG. I've have the same idea about this economy problem and startup. This article gives me to lots of passion! I'll send this link to all of my co-workers. p.s. Can I translate this article to korean?
• vptes1 18y ago
  you are absolutely right, my friend. i'm starting up right now, and am looking forward to the challenge.
• wanderer08 18y ago
  These are the best of times.. these are the worst of times.. For sure, these are not average times.. :) Thanks Pg, keeps our spirit going!
• morphle 18y ago
  I agree completely. I have done startups before during recessions, and never had any problems because of them. Cofounders are a little harder to find, at least those who listen to the gloomy news and are scared because of it. However, good cofounders are easier to spot during recessions.
  • tdavidson 18y ago
    Agreed. Recessions flatten the mediocre but reward the great.
• dwoolley 18y ago
  I've always found that large competitors tighten up and don't release progressive new products during downturns. At the same time, new/small competitors are reluctant to start. That means there's no better time from a competitive stand-point. Now, investors will be reluctant, but if you are in a position to not need investors (self-financed), then I think it's an optimum time. Once up and running, with products released, the inevitable rising tide of the new economy will float all boats. Continue keeping expenses low and other disciplines ingrained during the downturn, and ride the new tide up.
• thierryhubert 18y ago
  Your article is very timely. In fact I have a start-up that I have been building with a small team paid by sweat-equity. I also have an excellent and motivated business partner & co-founder who I trust and I keep on admiring his dedication and motivation despite having the most difficult time in raising seed money (apparently a requirement/excuse for VCs to event get involved). We are building a Web utility that facilitates information consumption. We are testing it with friends and family and the results are very encouraging. Given the state of the economy and the lack of financial resources, we have decided to continue to boot-strap our business and we will be releasing our Web tool for people to use. By the way, I found your article this morning using our product. The idea is to introduce it and demonstrate its usefulness through actual usage and viral distribution. We are also reducing our initial set of features to reduce the risk and wait for a measurable adoption rate to make a stronger case for funding. We are not serial entrepreneurs and deeply believe in what we have. We are convinced that with our passion, on-going re-enforcement from our users, the academic community and peers, we have what we need to fuel our passion and success. We are confident that we will succeed regardless of the investor community’s current mood. Thanks for a great article! Thierry Hubert
• sdattatri 18y ago
  Exactly my sentiments. Well said. Maybe you will like this video I made to express my sentiments. http://sanjaydattatri.blogspot.com/2008/10/its-not-all-doom-and-gloom-out-there.html http://sanjaydattatri.blogspot.com/2008/10/its-not-all-doom-...
• dudumimran 18y ago
  In my eyes an important factor is the psychological one where as an entrepreneur the ideas you have and the way you shape them tend to be more realistic in bad times then in hype times. I guess it is something of the survival nature. Dudu
• vivek 18y ago
  the thoughts are very much in synch with what my mind revolves for the past few weeks. Nice indeed.
• marktend 18y ago
  Thank God, finally some reason in the room. Run lean + create value + Targeted marketing = Success = MarkTend.com We were ahead of the curve on this one. Michael Kassing MarkTend.com http://marktend.com http://marktend.com
• clarkdever 18y ago
  I like how when PG writes an article, there about about double or triple the comments on hackernews compared to any other random submission. The line I found most valuable, is the reason I first decided to start a company. 'Markets don't "reduce headcount."' the most security you can have is working for yourself... or the government... but I think most of the "startup types" dread the idea of the bureaucracy. We like the freedom to rise or fall based on our own abilities, the freedom to make something that is going to change the world. The majority of hackers I know are revolutionaries, not reformers.
• Jyoti 18y ago
  Thanks for a very good post.
• ebauer 18y ago
  Interesting article: Your are absolutely correct about “the state of the economy doesn't matter much either way"---I personally believed that starting up a company in today's economy is an advantage because as you mentioned in your essay there are less competitors in the market place-which makes it easier to growth a business!! Ultimately, before you go into a business –it is necessary to do your research about the market and your competitors, such as, marketplace trends, problems with product and services, how problems can be corrected, get ideas for new products and applications-submit your own questions to discussion groups to get valuable feedbacks- it is up to the business owner to be successful. Again, Thak you for your article www.empresademercadeo.com
• many 18y ago
  Why does a mediocre pep talk get so many karma points? Who is this Paul Graham?
• deleted 18y ago
  [deleted]
• inspiresuccess 18y ago
  Very, very, interesting! Is it only about making money though? Sure that is essential, but what about the journey we take along the way? That is where the wealth lies.
• obelix 18y ago
  As someone who quit my job 4 months ago to co-found my first startup (not funded yet), this essay is chicken soup. Thanks PG.
• s3graham 18y ago
  What does "Technology trains leave the station at regular intervals" mean?
• marsdenis 18y ago
  pg - once again - you're right on - i might add though that passion is also an ingredient that founders need to survive a nuclear winter - if you don't love what you do or love what you are building you wont survive the best of times and you're doomed at the worst of times as every passing day will test your will power to stick with it and make it happen whether its sunny outside or raining fire.
• web20FDcomp 18y ago
  Great Article... Working on a site web2.0fuckedcompany.com if you want to help....
  • dabrain 18y ago
    I wonna help
• wjohn928 18y ago
  I completely agree. I cant wait to outwork everyone in this market. I have a feeling that this is the time when the brave, bold and smart rise to the top and that is fully what I intend to do.
• sfojames 18y ago
  Very timely. And it's great to read a "glass half full" approach with some keen insight and advice. We're certainly planning on your main thrust to be true with our new platform. To that point - here's our latest blog post: http://tinyurl.com/6blrvl http://tinyurl.com/6blrvl Potential investors welcome!
• velshin 18y ago
  I searched this comments page for "food" and interestingly, I didn't see any comments pointing out that starting a tech startup is a (temporary) vow of poverty. This is exacerbated in a recession, when it's often more difficult to find investment capital for rapid growth. A point that seems lost in pg's recent start-the-startup cheerleading is that you need to be able to eat, pay rent, etc. Even if you're in your 20's and have a good chunk of money saved up, how long will it last? A year? Two? What if you don't see a paycheck for that long? Will there really be that many tech jobs available to "fall back on"? Part of the definition of a recession is a contraction of employment. That means tech jobs are less available, too. These reality checks shouldn't stop anyone, but it'd be nice to see a reminder from Graham once in awhile to do the maths (personal budget etc.) and be realistic. A lot fewer tech workers are in the financial position to start a startup than they realize. Ramen money indeed!
  • morphle2 18y ago
    Velshin, That is reality. But it is also reality that these kind of amounts (if you're careful in what you're spending), can be earned in a few days a month doing something you're good at. Just trust in your own qualities.
• ageremew 18y ago
  Very good article. I was wondering if this is actually a good time to start some sort of business or not and I stumbled on this article by accident. It is good to be optimistic and on the positive side of what is in the news than being discouraged. I command you for your good advise.
• satyajit 18y ago
  I don't necessarily think PG is all about making money. In fact in a recent London talk (http://dl.getdropbox.com/u/142733/Audio/Lectures/future_of_web_startups_pg.mp3 http://dl.getdropbox.com/u/142733/Audio/Lectures/future_of_w...), he talks more about hackers' freedom. Hackers are animals shackled in corporate zoos, and they need to be freed to express/invent! He also goes on to say, you can even pay them less, as long you provide them the freedom to release their energy! PG's mantra is a super powerful one: Make something people want, which also translates to 'Create something, make money while making something you love and your customers love'! That's empowering...
• ODBS 18y ago
  I disagree with comments attacking a money motive. If you don't want to get rich, than do something significant with your life - if you can, then give the money away or help others in some way. And I don't think you really meant greed or you would have said that, and the essay doesn't say go be greedy. I also agree strongly with the consequences of fear, and how everyone else seems to be cowering in the corner. I am on the tech train and I have it almost entirely to myself. I recently attended some security functions, and it suddenly hit me how this field is begging for innovation. Of all the products and all the big name providers, it was nothing but me-too and do-it-again in a different package. Everyone I talked to from sales to tech, wanted one thing and one thing only - to play it safe and keep their job.
• myteev 18y ago
  looking for investors..... interested? myteev.blogspot.com
• adityag 18y ago
  I believe there is no good or bad time to start a startup. As far as economy is concern, it's more dependent on the perspective you take to look at it. I work for a software maker up in northwest, and everytime I think about opening a startup, I meet a few people suggesting against it with economy as the reason. When the economy is good and our company's stock is going up, the normal advice is:"you know you will be much better-off sticking here for some more time because we are doing so good right now." And now when the economy is down and our stocks are hitting the bottom, the advice is: "this is not the right time to leave the company and open a startup. You won't get funding and with our stocks so low, you will be broke bootstrapping your startup." My perspective: well I got a good idea and great co-founder, let's go for it. We will figure how to survive the economy on the way.
• anand_amarsh 18y ago
  of many examples, Sony (created after WW II in a bombed building) reminds me of how great innovators are not affected by transient disasters. I guess we should feel lucky that we only face economic crisis, and not the terrible destruction the world has faced before :)
• nikhilmb 18y ago
  nice artcile that gives inspiration to people like us to venture into startups at these difficult times! really an insightful one!
• fishonmars 18y ago
  I totally agree. I used to be dilbert in a cube working for Charles Schwab writing code 10 to 12 hours per day (and weekends) and then poof I got laid off and my job went to India. But before that my co-workers were jumping ship to work at startups and I thought they were nuts. I'm now working on my third startup and this one has a chance because I'm competing with eBay (4cheetahs.com). Even working for a billion dollars company on multi-million dollar project with egotistical personalities decked out all in black attire and goatees doesn't guarantee you won't get laid off or canned for not writing code fast enough. Now is the perfect time to start a startup becuase you can recruit more people who will work for experience. My first startup was Big Bear and I recruited engineers off of craigslist for free to compete with Tivo. In a year they had built a new technology to modify (in one minute) any vcr or dvdr to be programmed from a computer through wireless or usb or over the web or a cell phone. Just couldn't get funding. Then I tried competing with Match.com and the site never launched and I focused on recruiting do-nothing MBAs from our countries finest business schools (another waste of time). This time I only care about programmers. I've interviewed more than 100 MBAs they are as different in their views as economists are about the economy and most couldn't write a line of code to save their life. All I care about is building a team of good programmers. Thus far I've found two to join the cause. Site goes up next month and I'm pretty jazzed about that. If I had a well paid job I wouldn't take the plunge in a startup. I'd be too chicken. But since I've been out of work since 9/11 it's much easier to take the plunge and I don't care nor thinking about the risk. Everything and anything you do in life involves risk. You only live once. You might as well be rich that's my motto.
• fishonmars 18y ago
  The poverty part about a startup is true. To save money I bought a mountain bike and soon afterwards sprained my ankle so I couldn't ride my bike (to save on gas money) and then I caught the flu and I've been down for the count for 2 weeks recovering and didn't have the strength to pedal. Little things like comcast bills and tmobile bills add up. Starbucks adds up but that's the only place next to Cafe Borrone that I brainstorm and relax enough to write code and design web pages and mess around with ColdFusion8. None of my great ideas came to me in my apartment. They all happened while sitting in a cafe relaxing. My neighbors at my apartment complex are not american and not programmers but they do seem to have a keen interest in bad loud music and burning out with their cars in the parking lot. Founders At Work is a good book and a good read but another book I'd like Livingston to write is about failed startups. Also, a lot of the stories in the book are software projects and not true startups. In a startup you have to embrace failure and change and headaches and it's a demon of a roller coaster. So though it's a startup I still have costs like car insurance, gasoline, food costs, 1,100 a month rent, utilities for electricity. I have a programmer executive chair, a desk from Scandinavian designs and a camping air mattress from REI and a sleeping bag and blankets and great pillow from Bed Bath & Beyond. Shopping at Costco is recommended rather than Safeway or Longs Drugs to save money. So starting a startup doesn't take into account the 3,500 I shelled out for a Macbook Pro (which I bought thinking I was going to become a teacher) and I do use a wind up flashlight from REI for light but I'll switch over to candles soon. Cutting costs is the name of the game. But finding dedicated programmers is the key to victory. I don't recommend anyone start a startup by themselves because there is so much you have to think about and get feedback from friends. I changed the entire design of my site just a week ago and writing requirements is a pain but a necessary pain. Also, milestones work. It's easier to tackle one pebble at a time rather then a whole boulder which is just too overwhelming. Daily progress and weekly progress is the only way it will work. Also, I have recruited many of my friends to help out when the site launches in terms of testing, and accounting, and customer service and they're all going to work for free but none of my friends are coders. Everyone I used to know that wrote code doesn't write code anymore. They either got carpal tunnel or just cut coding cold turkey. Having money is key. I'm funding this startup with my inheritance but if I don't get funding or the site isn't making enough dough by Valentines day the site will crash and burn and then I'll have to sell my car and I don't want to do that. I sold my car for my first startup and that was the biggest mistake I made in my entire life. Life is much more difficult without a car.
• liubinskas 18y ago
  I wrote my 2 cents before seeing PG's $2 http://www.pollenizer.com/?p=25 http://www.pollenizer.com/?p=25 And as Chris Hitchen from Getprice.com.au said the other day; "A recession? Is that when a user comes back to your site again and again?"
• fishonmars 18y ago
  How could I forget. Setting up serve space and a database takes time and money too. And then there is setting up a credit card account so people can pay more easily on your site if you are taking money. Then there's the setting up of the business account at the bank and waiting for eons to get a Federal Tax ID number. I switched over my previous FTID to my new site from my old site because my old site never launched (thank God) but banks do drag their feet in opening up a business credit card account which is needed to set up a merchant account with Amazon Simple Pay since I won't be allowing PayPal since eBay owns them and I'm competing with eBay. The biggest drawback of a startup is the lack of sleep but the biggest benefit is no commute time so you save a fortune in not driving much. So it's a lot more then merely writing code. You need shelter (a place to live) and money for food and rent and utilites and gasoline for the car. Then unexpected bills like speeding tickets, car registration, smog check, and car insurance it all adds up fast and at a frightening pace. So I don't go insane I visit one of my brothers who's studying for his PhD in CS at UC Santa Cruz and I've promised him a job when he graduates. He thinks in C and Lisp and can write bug free code. He's not human. So I spend money keeping him well fed. So sacrifices need to be made. And if your site grows you're going to need more servers and more databases and they run on electricity not oxygen and that costs money. I would think it would be educational and a good thing for all universities to house startups on campus to study them and learn from them but I agree with PG that it's the founders, dedication, determination and not stubbornness. There is a lot of uncertainty too. I just visualize the site working and it keeps me going. I watch videos of soldiers in Iraq fighting on YouTube and then I don't mind so much writing code. At least nobody is shooting at me when I'm writing code. And it's good to take breaks and relax sometimes because you need to unplug from the matrix so that you have a life outside of your code.
• jmdesp 18y ago
  One things that helps too is that in recession time large companies have no available resource to stomp you out of existence. They're fighting to survive, cutting jobs and getting completely disorganized, and no one realizes there's a little guy out there who's stealing markets and clients.
• thinkingjoe 18y ago
  could it also be that the cloud gang saw this coming? or just as you (pg) say - tech, stocks are not strongly interdependent
• varun 18y ago
  Paul, a timely and encouraging article, thanks. - Varun www.homecamera.com
• den 18y ago
  "The cheaper your company is to operate, the harder it is to kill." That's one of the most bad ass business quotes I've heard in 2008. Nice PG! (btw, I started a new company this year and would add that it's much easier to hire GREAT people in these types of markets.)
• akshay 18y ago
  I did quit my day job and decide to pursue my long-time goal of building a startup vs. getting a grad degree. Great article.
• paines 18y ago
  Paul, I think you are wrong with that one. Who would lend NOW a bunch of (IT) guys money for a startup. A bank ?!?! No! Rather the mob. The reason why Viaweb/MS/Apple were succesfull is that they invented / did stuff that didn't existed at that point. You /They created a market where there was none. Back in these days there was a small amount of technology and a small group of people who understood it. Nowadays it's much tougher with competition from anywhere and anyone has access to loads of information and technology. Regards, Anes
• im 18y ago
  Exactly one of the following is true: (1) The probability of success is equal whether you start a startup in a good or a bad economy. (2) The probability of success is greater if you start a startup in a good economy. (3) The probability of success is greater if you start a startup in a bad economy. This latest essay is a bit ambiguous as to whether it's defending (1), (3), or (2)-but-not-by-much. Which is it?
• RomanZolotarev 18y ago
  Russian translation http://spring.jumpidea.com/2008/10/paul-graham-badeconomy.html http://spring.jumpidea.com/2008/10/paul-graham-badeconomy.ht...
• gengstrand 18y ago
  Thanks for the informative and inspirational message. I linked to it from http://ploneglenn.blogspot.com/2008/10/where-angels-fear-to-tread.html http://ploneglenn.blogspot.com/2008/10/where-angels-fear-to-... You are right. It is all about cost containment in times like this and providing a cheaper alternative is the ticket. That is why I started http://www.dynamicalsoftware.com http://www.dynamicalsoftware.com with its flagship product http://www.code-roller.com http://www.code-roller.com whose vision is a marketplace of entrepreneurs, evangelists, experts, and enthusiasts of software development that uses time tested, best-of-breed SDLC deliverables and work flow for a higher quality, faster time to market, yet more affordable alternative to getting custom software done.